Living to 95: It's very possible and it will impact your retirement portfolio

When I prepare retirement projections for my clients, I routinely use age 95 for the life expectancy. Nearly everyone jokes that "there's no way I am living that long." But will they?

It looks like there is a decent chance that they will. A lot of people think that life expectancy is closer to the late 70s and that is probably because the National Vital Statistics Report has done a good job of publicizing the average life expectancy. In its December 2007 report, the average life expectancy was, in fact, 77.8 years. However, this number is the life expectancy at birth. If you have already managed to make it to age 65, your life expectancy is 85 if you are female and 83 if you are male. If you are already age 80, your life expectancy is 90 if you are female and 88 if you are male. And remember, these figures are just averages. If you eat well, exercise, and do all the right things, you can easily add a few years to these figures. Suddenly, living to age 90 and longer seems like a bet worth taking.

So, a person retiring today at age 65 has to plan for their assets to last approximately 30 years. This will almost certainly require a higher allocation to equity mutual funds than most retirees originally thought. A long time ago, the "rule" used to be that your stock allocation should equal 100 minus your age. That guideline is no longer used. Also, if your assets are not sufficient to carry you for 30 years, you might want consider working past age 65, even if it is on a part-time basis.

Of course, family history and other personal factors play a huge role in determining how long you might live. There are several good life expectancy calculators out there. Some are more "thorough" than others. I liked the two at the Living to 100 website and the MSN Money website. The MSN Money calculator was easier to use and less time consuming, but the Living to 100 calculator gives you specific suggestions for improving your life expectancy. In my case, it looks like I won't be living to 100, but I might make it to age 94. If I am willing to commit to flossing every single day, I can pick up an extra year. That's probably a good deal and maybe I'll do it. Eliminating coffee and sweets from my daily routine would also add another year. Not a chance.